Earnings Call Transcript - SPGI Q4 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2020 IHS Markit Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your host today, Eric Boyer, Head of Investor Relations. Please go ahead.

Eric Boyer, Head of Investor Relations

Good morning, and thank you for joining us for the IHS Markit Q4 2020 earnings conference call. Earlier this morning, we issued our Q4 earnings press release and posted supplemental materials to the IHS Markit Investor Relations website. Our discussion on the quarter is based on non-GAAP measures or adjusted numbers, which excludes stock-based compensation, amortization of acquired intangibles, and other items. IHS Markit believes non-GAAP results are useful in order to enhance understanding of our ongoing operating performance, but they are a supplement to and should not be considered in isolation from or as a substitute for GAAP financial information. As a reminder, this conference call is being recorded and webcast and is a copyrighted property of IHS Markit. Any rebroadcast of this information, whole or in part, without the prior written consent of IHS Markit is prohibited. This conference call, especially the discussion of our outlook, may contain statements about expected future events that are forward-looking and subject to risks and uncertainties. Factors that could cause actual results to differ materially from expectations can be found in IHS Markit’s filings with the SEC and on the IHS Markit website. After our prepared remarks, Lance Uggla, Chairman and CEO; and Jonathan Gear, EVP and Chief Financial Officer, will be available to take your questions. With that, it’s my pleasure to turn the call over to Lance.

Lance Uggla, Chairman and CEO

Oh, sorry. There we go. The first mute of the year. Thank you, Eric, and Happy New Year. We achieved a lot in 2020, solid financial results proving the resiliency of our business model; greater levels of innovation across the company; higher employee satisfaction scores; and finally, we announced a strategic merger with S&P Global, which will create the leading global information services provider. Overall, we finished the year ahead of expectations and are reiterating our 2021 revenue and adjusted EBITDA guidance. We are updating our adjusted EPS by $0.03 due to our share repurchase restriction because of the pending merger. Now onto the financial highlights for the quarter and the year. When we speak to Q4 and fiscal year results, they are normalized to exclude the impact of the aerospace and defense divestiture and the cancellation of Q2 events on growth rates for organic revenue and adjusted EPS. Organic revenue growth was 0% for the quarter and the year, adjusted EBITDA margin expansion was 160 basis points in the quarter and 250 basis points for the year, and adjusted EPS growth was 11% in the quarter and 13% for the year. In terms of our core industry verticals, I'll provide Q4 and full-year 2020 highlights and our outlook for 2021. First, our Financial Services segment had organic revenue growth of 6% in Q4 and 5% for the full-year. In 2020, within information, we continue to benefit from the innovation and demand for our pricing, reference data, and valuations offerings. The successful launch of new regulatory solutions, notably our SFTR reporting platform, and we had strong growth from indices led by our fixed income and newly launched ESG indices. Within Solutions, we continue to invest in our leading products and integration capabilities, launched private debt investment lifecycle solution, and experienced robust growth from continued expansion of our managed corporate action solutions. Within Processing, we invested in our core OTC and loan settlement platforms to help the industry facilitate the IBOR transition and regulatory requirements. We also successfully served the industry through one of the most volatile periods in recent history. In 2021, we expect organic growth within financial services in the 6% to 8% range. Within information, growth will be led by increasing customer demand and new products within our pricing, reference data, and valuation services businesses. We also expect continued strength for our regulatory reporting and compliance offerings. Within this business, we'll integrate our recent acquisition of Cappitech, which will help solidify our leading industry position. Now within Solutions, we expect high growth across our diversified offerings, and a rebound in managed services and implementation of projects. In particular, we are looking for a strong year from our onboarding and compliance management tools, expansion of our portfolio, and data management solutions into new sectors and continued high growth in private market offerings. We also expect normalized levels of equity and debt issuance that will drive solid performance in our syndication and book building businesses. Processing is expected to be slightly up year-over-year with mixed market conditions in both loans and derivative markets. Now let's move on to transportation, with organic revenue growth in the quarter of 2% and a decline of 2% for the year. In 2020, the pandemic had a major impact on the automotive industry. And we responded proactively to the crisis by working with our customers and continue to see the rebound in our business with recurring organic growth of 6% in Q4. During the pandemic, we also increased our focus on driving adoption of newer products, such as CARFAX for Life, while accelerating product innovation across our portfolios in areas such as marketing audiences, enhanced compliance simulation and Mastermind, now available for used cars. Our Maritime & Trade business had a solid year, excluding the impact of the cancellation of our TPM conference. In 2021, we expect organic growth within transportation in the 12% to 15% range. We expect our automotive business to revert to its longer-term growth range. Although economic uncertainty remains, our dealer-facing businesses have strong momentum going into 2021, and the strong retention rates we've maintained through 2020 attest to the critical nature of our products. Product support in our OEM and supplier customers will recover more gradually as the industry adjusts to lower long-term volumes coming out of COVID. In addition to the underlying growth in the business, we expect to see a one-time pickup in organic growth from pricing being at normal levels for the full-year, specifically within CARFAX and Mastermind businesses. Finally, Maritime & Trade will continue to see accelerating subscription growth, driven by product innovation in our risk and compliance and commodities analytics businesses. Moving on to resources, where organic decline was 11% in the quarter and negative 5% for the full-year. In 2020, our upstream business was impacted by the industry undergoing severe CapEx reductions, leading to cost pressure within our customer base and bankruptcies, particularly in North America. Our downstream organic revenue growth proved resilient, when normalizing for our events. Growth within our gas, power, and renewables businesses were driven by customer expansion into areas such as wind, battery, solar, and hydrogen services. This was somewhat offset by lower non-recurring revenue within consulting. We also completed the integration of the agribusiness and acquired truView, a small upstream analytics company. And in 2021, we expect organic revenue results within resources to improve compared to 2020 and to be down year-over-year in the low single digits. Our downstream businesses are expected to return to mid-single-digit organic growth, driven by continued demand for our pricing, chemical information, the release of additional plastic circularity products, a new database of estimated energy chain emissions, and from the realization of synergies from the agribusiness integrations. Within our upstream businesses, we expect customer CapEx spend to continue to be constrained for our annual contract value, which will bottom in Q1. In 2021, we are excited to launch our new predictive analytics tools that will marry our upstream and midstream global data sets with our proprietary insights and research and will drive additional forward growth. Finally, CMS organic revenue growth was 0% for the quarter, and 1% normalized for the impact of BPVC for the full year. Product design proved its resilience with organic growth in the low single digits, normalized for BPVC, while TMT and ECR performed as expected. In 2021, we expect our organic revenue growth to be in the mid-single digits. Moving on to some of our recently announced strategic initiatives. We entered into a 50-50 joint venture with shared control with CME to combine our post trade services, including trade processing and risk mitigation operations. The venture will incorporate our MarkitSERV business and CME’s optimization business. Through the combination, we will achieve increased operating efficiencies and new revenue opportunities by being able to better service clients with enhanced platforms and services for OTC markets across interest rates, FX, equity, and credit asset classes. We expect the deal to close in the summer and to be neutral to our adjusted earnings in the near-term. Finally, we announced the strategic merger with S&P Global, which joins two world-class organizations with unique highly complementary assets. This combination creates a pro forma company with increased scale, world-class products in core markets, and strong joint offerings in high growth adjacencies, including ESG, energy transition, private assets, small and medium enterprises, counterparty risk management, supply chain, and trade. Alternative data are unique and complementary assets that will leverage cutting-edge innovation and technology capability, including the IHS Markit Data Lake, and S&P Global's Kensho to enhance the customer value proposition. For IHS Markit shareholders, employees, and customers, merging with S&P Global was the best strategic fit to create the most long-term value. Post the merger announcement, Doug Peterson, CEO of S&P Global, announced his executive team for the pro forma company, which includes the following members of my Executive team. First, Adam Kansler will lead the combined S&P Global market intelligence business and the IHS Markit Financial Services segment. Edouard Tavernier will lead the Transportation segment. Sari Granat will be the combined company's Chief Admin Officer and General Counsel; and Sally Moore will lead Strategic Alliances and will have responsibility for Corporate Development and Strategy. Other members of my Executive team and I have also agreed to help with the integration for 12 to 18 months post the close. I believe Doug has assembled a great executive team that will bring together members of both companies and will be a great first step in merging the two companies. And now I'll turn the call over to Jonathan.

Jonathan Gear, EVP and Chief Financial Officer

Great. Thank you, Lance. We have a strong finish to the year with results ahead of our expectations. Our Q4 financial performance included revenue of $1.107 billion, with organic growth of 0% and all-in revenue of negative 1%, GAAP net income of $151 million and GAAP EPS of $0.38; adjusted EBITDA of $465 million, an increase of 3% with margins of 42.0% and adjusted EPS was $0.72, an increase of $0.07 or 11%. We were pleased with the finish of the year, and a solid revenue and profit performance we delivered throughout 2020. Relative to revenue, our Q4 organic revenue growth of 0% included recurring organic growth of 2% and nonrecurring organic growth of negative 11%. Moving to segment performance, Financial Services revenue growth was 7%, including 6% organic and 1% FX. Recurring organic was 6%, while nonrecurring organic growth was 9%. Our information business organic was 4% led by strength in our pricing indices and equities information products. Our processing organic was 1% as we saw a return to growth in loan markets offset by a slight decline in derivatives processing. Solutions organic was 10% due primarily to strong performance in our corporate actions, private markets, and digital businesses. Transportation had revenue decline of negative 4% including 2% organic, flat FX, and divestiture of negative 6%. Organic growth was comprised of 6% recurring and negative 9% nonrecurring. Resources revenue declined 11%, including negative 11% organic and flat FX. Recurring organic was negative 8% and nonrecurring organic was negative 32%. Our Q4 ACV decreased $22 million and our full-year ACV decreased $74 million, down 9% versus prior year. We ended the year with ACV of $719 million, which now includes agriculture of approximately $30 million. CMS revenue declined 2%, including 0% from our benchmarking business divestiture impact of negative 1% and flat FX, recurring organic was 2% and nonrecurring organic growth was negative 13%. Turning now to profits and margins, adjusted EBITDA was $465 million, up 3%. Our adjusted EBITDA margin was 42.0%, up 160 basis points. Moving to segment profitability, Financial Services adjusted EBITDA margin was 48.7%, up 260 basis points; Transportation's margin was 45.3%, up 350 basis points; Resources margin was 40.2%, down 200 basis points and CMS margin was 24.7%, up 20 basis points. GAAP net income was $151 million or $0.38 per share. Our adjusted EPS was $0.72 per diluted share, a $0.07 or 11% improvement over the prior year. Our full-year adjusted tax rate was 18%. Q4 free cash flow was $275 million. Our full-year free cash flow was $940 million and represented a conversion rate of 51%. As a reminder, our full-year conversion rate was impacted by several nonrecurring items. Turning to the balance sheet, our year-end debt balance was $4.9 billion, which represented a gross leverage ratio of approximately 2.7x on a bank covenant basis, and we closed the quarter with $126 million of cash. At year-end, our undrawn revolver balance was approximately $1.2 billion. Our Q4 fully diluted weighted average share count was 400.5 million shares, and our full-year was 401.5 million shares. We completed the 200 million ASR in November of 2020. Our full-year share repurchases were approximately $1.1 billion or 14.6 million shares at an average price of $73.71. The merger agreement with S&P Global restricts our ability to purchase our shares; therefore, our share repurchase program is currently suspended, other than for the purchase of shares associated with tax withholding requirements for share-based compensation. We paid a dividend of $67 million in Q4 for a FY 2020 total of $270 million of dividends. The merger agreement allows for the continued payment of a regular quarterly cash dividend in the future. And we are recommending to our Board for the approval in our January 2021 meeting to increase the quarterly dividend from $0.17 per share to $0.20 per share, effective for the Q1 2021 dividend payment. Moving to full year financial results, when we speak to full-year results, they are normalized to exclude the impact of the aerospace and defense divestiture, and the cancellation of Q2 events on growth raised for organic revenue, adjusted EBITDA, and adjusted EPS. Total full-year revenue was $4.288 billion, which represented a decline of negative 3%, 0% organic, negative 2%, flat FX. Turning now to reported profits, adjusted EBITDA was $1.837 billion, up 8% versus the prior year. Adjusted EBITDA margin was 42.8% with reported margin expansion of 250 basis points. GAAP net income was $871 million with GAAP EPS of $2.17, and adjusted EPS was $2.84, a 13% increase versus the prior year. In terms of guidance, we are reiterating our 2021 revenue and adjusted EBITDA guidance, and updating our adjusted EPS for a $0.03 impact due to our inability to repurchase shares as a result of the pending merger. Our 2021 guidance is as follows: Revenue of $4.535 billion to $4.635 billion, with organic revenue growth of 6% to 8%, including recurring organic growth of 6% to 7%. Adjusted EBITDA of $2 billion to $2.03 billion with adjusted EBITDA margin expansion of 100 basis points, and adjusted EPS of $3.11 to $3.16 per year. Finally, we do expect cash conversion in the mid-60s as we lap our 2020 one-time cash impacts. And with that, I will turn the call back over to Lance.

Lance Uggla, Chairman and CEO

Thanks, Jonathan. We managed through the many challenges of 2020 very well and are positioned to have a strong 2021. We're excited about the merger with S&P Global, and believe it will create long-term value for shareholders, new insights, and capabilities for customers, and greater opportunities for employees. Finally, I want to thank our shareholders for their continued support and our colleagues around the world for their dedication and focus through what was a very challenging 2020. Operator, we're ready to open the lines for questions.

Operator, Operator

Thank you. Our first question comes from the line of Kevin McVeigh with Credit Suisse. Your line is now open.

Kevin McVeigh, Analyst

Great. Thanks so much. Hey, pardon me, congratulations. Lance or Jonathan, what do you think about kind of the joint venture you announced with CME seems really interesting. Is there more opportunity, just given the unique data sets to cultivate beyond CME into other opportunities? And just, I think, it underscores the strategic rationale for the S&P deal. Is there more opportunity from a client perspective, any initial reactions around the announced acquisition and then just additional opportunities that you're seeing similar to kind of what you do with CME?

Lance Uggla, Chairman and CEO

Okay. Why don't I start, then I'll pass it to Adam, who did the transaction for us. But this was something that when we originally thought about selling MarkitSERV, we actually thought that there would be an impetus to buyers that wanted to find ways to consolidate the assets. But I think given that the assets are primarily held by strategics and consortia and a variety of industry-owned relationships, it proved a tall order for any private equity firm to create that consolidation. And so post that, we looked at the strategic assets across the industry. And, of course, between ourselves and CME, we have the majority of the OTC processing assets. Therefore, the synergies for both on the cost side, but also in terms of servicing the customer and creating incremental margin for investment stood out really strong. We think that the consolidation of processing assets across the industry is something that this CME IHS Markit transaction as a JV is a first step. But why don’t I pass it over to Adam, who can give you some incremental color.

Adam Kansler, Executive Vice President

Sure. Thanks, Lance. There will be much more to come in the next few months as we integrate the two businesses. To answer your question at a high level, we have a shared customer base, similar workflows, and much of the same data enhancing the workflows that customers use across CME assets and our own. This integration will result in a more comprehensive dataset across all workflows, particularly in the derivatives markets, allowing us to develop additional analytical and workflow tools that help our customers manage their risk and processes more effectively. For many years, customers have experienced challenges with maintaining these datasets and workflows in multiple locations, resulting in inefficiencies and increased costs, as well as potential breaks in processes. This presents an opportunity to enhance the risk management capabilities for our customers, improve efficiency, lower their costs, and provide better tools. We will certainly see innovation and new applications arising from these datasets and the integration of workflows over time.

Lance Uggla, Chairman and CEO

Thanks, Adam. Next question.

Kevin McVeigh, Analyst

Thanks a lot.

Operator, Operator

Thank you. Our next question comes from the line of Manav Patnaik with Barclays. Your line is now open.

Manav Patnaik, Analyst

Yes. Good morning, guys. I just want to focus on the resources business. So if I got the ACV right, if you exclude the agri business, it is down 9% and that's decelerated again for the third quarter in a row. So I was just curious why you’re confident that things going to bottom in Q1 here?

Lance Uggla, Chairman and CEO

Jonathan, do you want to start and then pass that to Brian or vice versa?

Jonathan Gear, EVP and Chief Financial Officer

Sure. I'll begin and then hand it over to Brian Crotty. Manav, the resources are developing as we anticipated back in Q2 when we recognized the impact on upstream. We are observing a two-tier situation where the upstream business faces challenges from external markets, while the downstream business is performing consistently on the subscription side. Regarding the ACV, we need a complete 12 months to reflect the restructuring of the marketplace, which occurred around mid-Q2. As previously discussed, we have been actively engaging with our customers and industry partners, but it does require a full year. Looking ahead, Q4 met our expectations, and we foresee a further decline in Q1, but we expect ACV to reach its lowest point and then start to improve in Q2. Now, I'll turn it over to Brian for any additional insights he may have.

Brian Crotty, Executive

Yes, when you look at the ACVs, it's really upstream that drove the decline in ACV. When you look out at the next year, you can see the rest of the group, you can see them improving steadily. And even upstream, we hit bottom in Q1 and then we steadily improve and get positive ACV in Q2, Q3, and Q4.

Lance Uggla, Chairman and CEO

Right. Thanks, Brian and Jonathan. Now next question.

Operator, Operator

Our next question comes from the line of Gary Bisbee with Bank of America. Your line is now open.

Gary Bisbee, Analyst

Hey, guys. Good morning. Maybe I'll stick with resources. One of the key questions I get from people around the S&P transaction is just thinking through potential synergies. And with resources, it's not so clear to me exactly where those will be. Since you acquired Opus a couple of years ago, which is a similar business model to a lot of Platts. Can you just help us understand what synergies adding Opus to your portfolio has delivered for the resources business? Has it helped innovation? Has it helped create new data sets? Have there been some real clear benefits to business, especially the top line from adding that to your portfolio over the last couple of years? Thank you.

Lance Uggla, Chairman and CEO

Maybe I can start, Brian, and then I'll hand it to you. So first off, if you look at our business, it's a 50% upstream, consulting, data analytics. And, of course, that business is different than the S&P global business. And so there aren't the numerous product synergies, but there's definitely scale with customers and new customer opportunities for opportunities. As you shift down through chemicals, agriculture, Opus, all the pricing, McCloskey Coal indices, as you get into the pricing and indices, of course, all of those services where we have synergies between them, have the same opportunity set with the Platts teams. So we're quite excited about the mid and downstream synergies around the pricing and new services, although there will be overlap that we'll have to address within the closing of the merger. But that's a small piece of the revenue. Brian, do you want to add to that?

Brian Crotty, Executive

Yes. I think for us, it gives us a whole new customer base as well. When you look at wholesalers, convenience store marketers, even penetrates us more into traders. So I think that was a good thing for the Opus acquisition. Also, pricing services tend to have stickier renewal rates. And then the strong news component gives us a lower-end product to up-sell higher-end services. So I think strategically it was a very good acquisition.

Lance Uggla, Chairman and CEO

Thanks, Brian. Next question.

Operator, Operator

Our next question comes from the line of Jeff Meuler with Baird. Your line is now open.

Jeff Meuler, Analyst

Yes, thank you. On the transportation outlook, is it the typical annual pricing increase in CARFAX and AMM? Or is there some catch up since I don't think you got your typical increase this year? And what's the timing of that? And then any comment on forward visibility on nonrecurring within transportation. I know that, like the timing of recall campaigns can impact that, but just as we think about getting back to the growth that you're projecting? Thanks.

Lance Uggla, Chairman and CEO

Okay. Edouard, do you want to pick that one?

Edouard Tavernier, Executive

Yes, happy to pick it up. Thank you, Jeff, for the question. So on the pricing side, there will be price increases in 2021, and we will proceed carefully. Let's remember that across North America, we're still in the middle of the pandemic. So we are still reflected on exactly the right time to introduce a price increase. So that currently is planned, but it will be a normal pricing increase and no particular catch-ups. We are very focused on the health of our customers and dealer partners. In terms of the forward visibility, as you mentioned, Jeff, a lot of our transactional revenues are tied to things like marketing spend by the industry, as well as activity in the recall business. Now we're seeing some of those spend items come back, they were higher in Q4 than in Q3, and we're seeing a lot of good marketing activity coming through in Q1. So we are confident, they are on their way back. But as Lance mentioned in the introductory comments, it will take a bit longer for them to reverse to normalized trends. We expect that in the second half of the next year.

Lance Uggla, Chairman and CEO

Thanks, Edouard. Next question.

Operator, Operator

Our next question comes from the line of Alex Kramm with UBS. Your line is now open.

Alex Kramm, Analyst

Yes, hey. Just a quick one on the guidance. I know, largely unchanged, but the margin upside is pretty consistent with prior years. Any things to point out there on a segment basis or on a seasonal basis that we should be aware of as we think about 2021, or pretty consistent with what we've seen in the past?

Lance Uggla, Chairman and CEO

Sure, Alex. Thanks for the question. Regarding the 100 basis points margin performance, it’s primarily a result of building. Last fiscal year was quite unconventional for us in various aspects. We implemented some structural changes to our costs, and we're noticing positive outcomes from that. The growth rates we're seeing at 6% to 8% contribute to that overall margin. I consider FY '21 to be a relatively normal year. The comparison to '20 can be a bit complicated quarter by quarter. For instance, Q2 in transportation was particularly difficult for us, leading to some unusual seasonality in year-on-year comparisons. Overall, I would regard FY '21 as a fairly standard year for us.

Jonathan Gear, EVP and Chief Financial Officer

Thank you.

Lance Uggla, Chairman and CEO

Thanks, Jonathan. Next question.

Operator, Operator

Our next question comes from the line of Andrew Steinerman with JPMorgan. Your line is now open.

Andrew Steinerman, Analyst

Hi, Jon. Could you clarify how the transportation sector is performing in the current quarter, especially considering that the May quarter will show a significant year-over-year increase contributing to the 12% to 15% organic revenue growth for the year?

Jonathan Gear, EVP and Chief Financial Officer

Sure. I will direct you to the supplemental to review what happened in FY '20, and then I'll share insights on FY '21. To recap last year, when COVID struck, we voluntarily provided significant price concessions, especially in transportation during Q2, and it also slightly affected Q3. Looking ahead, the industry has experienced a strong recovery in the latter half of 2020. For instance, I recently tried to purchase a used car, and it was quite difficult to find one, demonstrating the industry's strength. I utilized CARFAX to locate a great car, which I would recommend. The industry has indeed bounced back. As we approach FY '21, we're observing a robust market, particularly at the dealership level. As Edouard mentioned, we closely collaborate with and support our dealer customers, being cautious about how we capture value and manage price increases and their timing. Currently, our customers are performing well, which aligns with our expectations. Edouard, would you like to add anything?

Edouard Tavernier, Executive

No, I think you covered the key points, Jonathan. There is a seasonality effect, right. If you look at 2020, we took a significant haircut in Q2 on revenues, even as we worked on our cost base in Q3, revenue started coming back in when costs were low, and that creates some seasonality in the margin accretion. And you're going to see some of that play out in 2021 in the comps. But otherwise, you captured all the key points, Jonathan. Thank you.

Andrew Steinerman, Analyst

Thank you. Appreciate it.

Lance Uggla, Chairman and CEO

Thanks. Next question.

Operator, Operator

Our next question comes from the line of Ashish Sabadra with Deutsche Bank. Your line is now open.

Ashish Sabadra, Analyst

Thanks for taking my question and congrats on the quarter. So my question is on the S&P strategic rationale and revenue synergies, as both teams have had a chance to spend some more time. Can you just talk about the ability to develop new product and improve commercialization of IHS Market Data Lake by combining it with S&P's Kensho, as well as the power of combining IHS Market Data Lake with S&P's market intelligence platform? And if you can talk about just the new product development as well as improved distribution of data asset, how that can help going forward. Thanks.

Lance Uggla, Chairman and CEO

Certainly. Let's concentrate on market intelligence and financial services, as this area presents significant product-related synergies. I'll pass it to Adam to elaborate further. To begin with, the Data Lake and Kensho: the Data Lake is where IHS Markit organizes all alternative data sets into a common library for easy access for both our internal needs and for commercialization to customers. We've done the hard work to organize these datasets. S&P Global acquired Kensho, which has expertise in advanced analytics and data science. We're eager to work with the alternative datasets we have to provide new decision-making tools, signals for trading, alerts, and deeper insights that wouldn't be possible without organized datasets and advanced analytics platforms like Kensho. Additionally, the market intelligence platform has hundreds of thousands of active users, allowing for direct distribution and the creation of tools and services for that platform. I'll let Adam share more insights, as there are several additional revenue synergies that the two financial services groups he leads are excited to pursue moving forward. Adam?

Adam Kansler, Executive Vice President

Thank you, Lance. We discussed a lot of this during the merger, and those themes still hold true. As we prepare for integration, we see those original ideas coming to fruition. We're focusing on the extensive data and insights available to the newly combined business. By integrating the vast data sets and content from our market intelligence platform into the technology solutions we provide, we can significantly enhance our customers' decision-making capabilities and offer them an efficient way to access varied datasets within their regulatory, compliance, and risk management workflows. For instance, our corporate customer groups in sectors like automotive, oil and gas, and engineering will benefit from both financial market and risk capabilities essential for their operations, as well as data tools that will help them excel in their specific markets. We can now offer deep industry expertise and market insights, including asset valuations, which our core customer base using our market intelligence products can leverage. These key areas reflect the blend of a comprehensive dataset across different assets and industries with workflow solutions that are already utilized by many of those customers.

Lance Uggla, Chairman and CEO

Thanks, Adam. Next question.

Operator, Operator

Thank you. Our next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is now open.

Shlomo Rosenbaum, Analyst

Hi. Thank you very much for taking my questions. Lance, just kind of two questions I want to sneak in. First is just the Data Lake went fully live I think in the summer, I just want to ask you to comment a little about what the uptake from customers was. Did it really validate the fact that you'll be able to improve the selling motion over there that seems to be a key kind of point that you're hoping to capitalize on with Kensho being able to use a lot of the stuff that's in the Data Lake? And then just maybe for Jonathan, what are you assuming for events in the year? Are you assuming that we're not going to go back to any live events and what would be events revenue be in kind of a normalized year? Thank you.

Lance Uggla, Chairman and CEO

Let me start by saying that we launched the commercialization of the Data Lake in the first half of 2020. We began with several proof-of-concepts involving large active users such as hedge funds and banks that utilize alternative data for significant decision-making. We have started to commercialize these relationships, transitioning them into longer-term contracts. These contracts are suitably sized with terms that enable customers to access parts or the entirety of the library for specified decision-making purposes. They also have the option to create some form of redistribution that aligns with their own products and services without competing with our datasets. We are focused on two key areas: building a pipeline of customers and initiating conversions. While I wouldn’t claim we've converted 100 customers yet, we have successfully converted 10 customers this year, indicating our momentum is increasing. Our pipeline is strong, and we have multiple avenues for establishing commercial agreements. Now, regarding the second part of your question about events, I'll hand that over to Jonathan.

Jonathan Gear, EVP and Chief Financial Officer

Great. We offer events throughout the year, but Q2 is our busiest month for events in terms of revenue, featuring our three major flagship events: CERAWeek, the World Petrochemical Conference, and the TPM Conference in our Maritime segment. This year, we are not planning to hold those physical events. Consequently, our revenue forecast for the year reflects no income from physical events. However, we will be conducting virtual versions of these three events. The revenue from virtual events is significantly lower, so we do not expect a substantial increase in revenue from this area. Nonetheless, it is an important way for our teams to continue to lead the industry and engage with customers, helping to connect the industry during these times. Thus, you will not see any significant revenue from events for us in FY '21, but we will be hosting the events virtually.

Lance Uggla, Chairman and CEO

I want to add, Jonathan, that I was quite impressed with our experience running CERAWeek India last year, which generated positive revenue. Therefore, we are applying that virtual model to the larger CERAWeek event for 2021. The customer participation in terms of attending and sponsoring the events has been reasonable. I've been impressed with the team's efforts; they have included me in discussions about building panels and such. They are doing a great job. Although I know they won't achieve the same level of revenue as they did with in-person events, they are gaining momentum to generate some positive revenue from virtual events as well. Let's see how that develops in the upcoming quarter, but they'll definitely have some figures to report. Thanks. Next question.

Operator, Operator

Our next question comes from the line of Hamzah Mazari with Jefferies. Your line is now open.

Hamzah Mazari, Analyst

Happy New Year. My question is just on the S&P transaction expected to close in the second half. Any next steps or milestones, any delays you expect from an antitrust perspective? Are there divestitures you have to do? How long do you expect the HSR process to take, sort of any color around that would be great, Lance? Thank you so much.

Lance Uggla, Chairman and CEO

Okay. Well, first off, our expectation is that it will close in the second half. We don't see anything specifically that's going to create any substantive hurdles. So all the hurdles that we knew going into it in terms of the business overlap within our Platts and Opus's businesses are there, and the teams are working to address those. My view is, there shouldn't be any significant roadblocks or hurdles. We'd expect to close in the second half and expect the teams to work with the regulatory bodies to determine the precise nature of the overlap of any assets that are substantive, but are insignificant in terms of size across the transaction. I don't know, Jonathan, anything else you want to add or is that …?

Jonathan Gear, EVP and Chief Financial Officer

I think you have it right, Lance. We've already started engaging with the government regulators; it's a very positive engagement there. And I mean, as Lance said, I just reiterate what he said, we see no surprises this year. Given the size of this transaction, it, of course, requires appropriate review by government agencies. But there's nothing I think that we see, nor have we heard any feedback that would cause us any concern. And it's just the nature of the size of it, I think it will be second half completed.

Hamzah Mazari, Analyst

Thank you so much.

Lance Uggla, Chairman and CEO

Excellent. Next question.

Operator, Operator

Our next question comes from the line of George Tong with Goldman Sachs. Your line is now open.

George Tong, Analyst

Hi, thanks. Good morning. Diving a bit deeper into transportation, you expect organic growth to be in the 12% to 15% range in 2021. And you mentioned dealers are performing relatively well. Can you elaborate a little bit more on the health of dealers and OEMs? And what needs to change at the customer level for you to hit your targets? Also, can you discuss a bit whether you've seen any negative impact from the full reversal now of earlier pricing concessions in transportation?

Edouard Tavernier, Executive

Yes. Hi, George. Thanks for the question. So in terms of what we've assumed in our forecast is a continuation of current rates, right, which means a market in the U.S is probably down roughly 10% year-on-year. It means continuing challenges with inventories and it means by and large, significant volumes of both used cars and new cars and most dealers remaining open, even if there are kind of local business restrictions. So we have factored in all of those risks. And we can execute on our plan and our forecast within the current market environment. In terms of what we're seeing in the dealer market and signposts about the health, I would say a couple of things. Like, in the end, many dealers had a very strong 2020 because even though volumes were down, they have to lower costs and because inventories were very low, the margins were high and dealers remained profitable throughout 2020. Most dealers are in pretty good shape coming into 2021 and expect to remain in pretty good shape. They expect prices to remain pretty solid throughout the year. What they do see is uncertainty, right, and that uncertainty means there is risk. It means they're not bringing in all of the costs back into the dealership. It means that there may be some ups and downs throughout the year. By and large that is the market environment we are seeing today, and that is the environment in which we can execute on our plan. George, that was the first question. Can you just remind me what the second question was?

George Tong, Analyst

Yes. If there has been any negative impact from the full reversal now of pricing concessions?

Edouard Tavernier, Executive

Yes, it's a great question. Thanks for asking it. So I think we mentioned on the Q3 call that as we were removing the pricing concessions, we would be tracking the retention rates very, very closely through Q3 and Q4. Well, the great news is, it remained very, very strong, right. So our cancellation rates have remained low, even as we took out the option to suspend service and we're very happy about this. If you remember back in Q2, when the crisis struck, we said the most important thing for our business is to make sure that when we come out of the crisis, we come out with customer relationships that are even stronger than they were coming into the crisis. That's why we made hard decisions. That's why we took the short-term kind of revenue hit because we believe that we had to do to get through the pandemic. I think we're coming out of it in the right place with very strong customer relationships with critical products and with high retention rates.

Lance Uggla, Chairman and CEO

Thank you, Edouard. Next question.

Operator, Operator

Our next question comes from the line of Jeff Silber with BMO. Your line is now open.

Jeff Silber, Analyst

Thank you so much. I've had a few investors ask me this question, so I'll just ask you. Can you talk a little bit about morale and internal turnover at your company since the merger announcement, especially in light of last month's announcement of the new divisional structure for the combined company? Thanks.

Lance Uggla, Chairman and CEO

It's a good question. There isn't much overlap in product sales management between the two companies. We have significant opportunities for revenue synergies that will require new personnel to focus on these opportunities. The synergies will be evident in all shared services. In a merger like this, we implement retention strategies to keep the teams motivated and performing well, which is essential for executing the deal successfully. This applies to executives, including myself, who will remain after the merger to ensure the success of the integration. Some individuals in shared services may not have long-term roles, but their contributions in the short term are crucial, so we structure compensation to support this. Moving into the end of the year after the merger announcement and the challenges posed by the pandemic, we have been operating at our highest satisfaction levels ever. It has been rewarding to motivate our teams during this tough period while managing the merger. After the merger, we’ve launched our hub platform, partnered with CME, and completed the Cappitech acquisition; there’s no slowing down. This company is moving forward with the merger in the second half, and we continue to execute effectively. I am very pleased with the response from everyone and the morale, especially regarding how we are handling employees who may not have long-term roles after the merger closes.

Jeff Silber, Analyst

Can you disclose the dollar amount?

Lance Uggla, Chairman and CEO

The dollar amount of the synergy?

Jonathan Gear, EVP and Chief Financial Officer

We established a $60 million retention fund, which we announced during the merger process. This cash pool is intended to help retain jobs that might be at risk. It’s important to note the word "potentially," as mergers often create uncertainty for individuals concerned about their personal situations. This retention fund, as Lance mentioned, essentially gives employees time to assess their future and mitigates risks during this year. We initiated the rollout of the $60 million fund shortly after the merger announcement.

Jeff Silber, Analyst

Okay. Appreciate the color. Thanks so much.

Lance Uggla, Chairman and CEO

Thank you. Next question.

Operator, Operator

Our next question comes from the line of Andrew Nicholas with William Blair. Your line is now open.

Andrew Nicholas, Analyst

Great. Thank you. I was hoping you could speak a little bit more to the Hub announcement you made last week, certainly a handful of major players coming together for that initiative. And so I'm wondering if you could speak to the specific set of middle and/or back office solutions the company is targeting? I think there's already a handful of skilled players in that space, so I want to make sure I understand where and the asset manager operation stack hub plans to play? And then also how Hub will be differentiated versus some of the incumbents in that space. Thank you.

Lance Uggla, Chairman and CEO

Hub has initiated collaborations with two major customers, PIMCO and Man Group, who are exploring ways to enhance efficiencies through technology. These relationships are strengthened by the shared history of the CEOs, with PIMCO's CEO previously holding the role at Man Group. Both leaders are focusing on utilizing new technologies to lower the total cost of ownership for the solutions needed. Hub's initial objective is to establish a foundation for client transaction and reference data storage, which will facilitate the management of middle and back office activities in asset management, thereby addressing inefficiencies caused by using multiple systems. This is still in the early stages, with Microsoft partnering for Azure deployment and advisory support, while McKinsey assists asset managers in their technology decisions. State Street is another key partner as they oversee PIMCO's outsourced back office. Hub brings extensive experience in data management and financial services technology development. This initiative represents a collaborative effort in thought leadership, involving multiple stakeholders in creating foundational technology to help reduce asset management costs for middle and back office functions and improve dataset management. It will develop a platform to connect with industry administrators and integrate various software solutions such as OMS, PMS, and risk management tools, thus forming a comprehensive hub aimed at lowering data management costs for large asset managers. The participating asset managers possess significant knowledge and intellectual property that will be leveraged in shaping Hub's future plans. Adam, do you want to add anything, or should we stop here?

Operator, Operator

Thank you. Our next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is now open.

Toni Kaplan, Analyst

Thank you. ESG is a high growth area, and it will be an important part of your future with S&P. And for S&P, we know that their ESG revenue is about $60 million annualized growing at about 40%. How big is your ESG revenue and how fast is it growing? And are there any specific products or areas that you can talk about that you're focused on for this year, in particular? Thanks.

Lance Uggla, Chairman and CEO

That's a good question, Toni. Our revenues, as Doug and I mentioned, are slightly larger, but they're different from what you would classify as pure ESG revenues because we don’t have specific ESG rating products. Instead, we offer a range of products that contribute to the environmental aspect of ESG and will integrate well with S&P's offerings. For instance, we have a carbon registry that includes voluntary emissions receipts for carbon offsets, and we develop carbon auction platforms in various locations such as Costa Rica, California, and Quebec. These auction platforms are increasingly vital for local carbon pricing, and we will continue to expand them. In our energy and transportation sectors, we possess substantial geo-location data regarding energy-related assets, which are crucial for future climate discussions. We also gather data on land use in agriculture and monitor tailpipe emissions from automotive fleets. Essentially, across all our business units, we incorporate elements of the environmental aspect of ESG. When we merge this with the ESG rating services from Trucost and RobecoSAM within S&P Global, we achieve a significant revenue base of around $125 million to $150 million, which we aim to enhance with continued double-digit growth. Doug has publicly mentioned a growth rate of 40%, and while we haven’t disclosed our exact growth rate, it is also in strong double digits.

Toni Kaplan, Analyst

Thank you.

Lance Uggla, Chairman and CEO

Thanks, Toni. Next question, maybe our final one.

Operator, Operator

Our last question comes from the line of Andrew Jeffrey with Truist Securities. Your line is now open.

Andrew Jeffrey, Analyst

Thank you. Good morning. Appreciate you squeezing me in here at the end. Lance, actually wanted to ask a question about financial services, which has been such a steady business for you and specifically in solutions and Ipreo, can you give us an update on sort of the performance of alternatives broadly? And then I wonder if you might talk a little bit about a couple of trends. I wonder if you're participating here, if you have any thoughts on those would be Bitcoin and the emergence of SPACs as funding vehicles, are those areas where you think Ipreo can monetize over time along with alternatives?

Lance Uggla, Chairman and CEO

Now, those are both good questions, and I'll start and then Adam can conclude. So first off, our financial services business has proved even through this tough year of the pandemic to provide us strong mid-single-digit recurring revenue growth. I don't see that waning going forward. I think with the synergies, it has an opportunity to accelerate. Ipreo, as an acquisition and now hopefully embedded part of our financial services business is accretive to our growth. It's accretive to our growth because of the market activity that occurred this year through the pandemic, but equally the alternatives business, which brings me to that second part of your question, which is I think we're one of two platforms that significantly plays in the alternative space, private equity, private debt, and the provision of services that will help the GP LP relationship managed more effectively. That strong double-digit growth for us, whether it's valuations, whether it's reporting, whether it's our new index JV, we've got some real exciting growth assets and ones that we can continue to build on. We don't have any plans at the moment, I don't know about S&P Global, but ourselves. With respect to Bitcoin, maybe Adam is going to correct me in a moment but I'll leave him to do so, but nothing big and significant. Of course, we have every millennial that works for us, thinks we should have a major pricing data services software in participation around a marketplace that is really legitimizing itself. We got to take it seriously. I expect pricing and data services, et cetera that we normally would provide any OTC pricing or contracts, those types of things, we'll be looking to value and participate. The second part, which you mentioned was SPACs. To me, SPACs are just another form of a new issue. Therefore the Ipreo teams through their activities stay on top of all the new issuance. As SPAC participates in the marketplace, if there's any follow-on equity activity, et cetera, of course, they would be participating. But in terms of this setup for management, that's not something that we do. I imagine the data sets, et cetera will be ones as they continue to grow that we've got to keep track of. Adam, do you want to add anything else to that?

Adam Kansler, Executive Vice President

I think you covered things well, Lance. Maybe two quick comments. First, on the Ipreo acquisition, I mean that really is fully integrated today. So we don't look at it separately, but each of those businesses is continued to perform really well, really providing central market infrastructure in a couple of places in highly volatile and really complicated financial markets over this past year, and it performed incredibly well and brought transparency and enhanced capabilities. That includes, you mentioned SPACs, the level of issuance in the SPAC market, many of those transactions, again carried through our platforms. In the alternatives segment of that Ipreo business, combination with our existing capabilities like valuation, data management, the expansion into credit asset classes has proven to be consistent with where the markets are going. The increased flow of capital into those spaces has positioned those businesses well to be market leaders in providing portfolio management tools, risk management tools, in particular data management tools. We go forward to both GP and LP community, those businesses have grown well up into the double digits over this past year. We see that for the next several years ahead. The last point I'd make is around crypto. Though not a singular focus for us, we obviously are responding to our customers' needs to be able to value those products. You'll see last November, we announced a partnership with a firm called Lukka. We have several other tactical partnerships, so we do collect a lot of different pricing and reference data and other valuation information around cryptocurrencies in order to help customers value portfolios that may include cryptocurrencies. So it's an area we'll continue to focus not just on the valuations side, but probably even moving into the index side in the near future as well.

Lance Uggla, Chairman and CEO

Okay, thanks. Thanks, Adam, and thanks everybody for your questions today. I'll turn it back to Eric, operator.

Eric Boyer, Head of Investor Relations

We thank you for your interest in IHS Markit. This call can be accessed via replay 855-859-2056 or international dial-in 404-537-3406, conference ID 8089142, beginning in about 2 hours and running through January 20, 2021. In addition, the webcast will be archived for 1-year on our website. Thank you, and we appreciate your interest and time.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.